Thursday, May 25, 2006

Why to privatized Aer Lingus

Some interesting comments over on Irish Election on my post Labour Target the Poor’s Savings . When asked why the goverenment should not invest in a profitable company. Here is my answer. Check out the rest of the comments.

Firstly there is a big difference between 3 million in Ryanair and the 2 billion that will be need to invested in Aer Lingus. The 3 million in Ryanair is a stock market investment that can be withdrawn if the stock starts to fall. If Aer Lingus suffers then so does the pensions of the future poorer people. 3 million is a miniscule amount in relation to the entire portfolio of the fund. A massive investment in Aer Lingus would be a significant long term investment in a company that if it goes south can not be recovered.

Also if a company is to be successful it has to be able to exploit commercial opportunities when it sees them. However a semi-state body does not have the ability to do this. It has to go through government channels and the whole situation becomes a political football. If it became commercial unviable for Aer Lingus to fly out of Shannon for instance. Would the government allow it to do this considering that it would lose the government all the votes in the mid-west. No it would force the airline to stay and operate at a loss. Effecting the return to the people.

Also back in 2003-2004 when the airline was looking for finance to expand the fleet. But due to government and Union feet dragging it could not purchases the extra planes. That was just after 9/11 and the aircraft market was very cheep. Indeed it was about 25% cheaper then it is today. If the company had been private then it could have bought more aircraft at a reduced rate. Indeed the 2 billion need to expand the fleet today would be 1.5billion back then. Or equal to 5 years profits.

Also presuming that Aer Lingus will stay profitable at it’s current levels. Which is debatable as it is one of the most volatile industries in the world. The pensions fund will not break even for 20 years. Also at its current profit level. If the company was to be sold for 400 million. That would mean that the people of Ireland would not see a monetary benefit for 24 years. Imagine where the financial situation of the world’s aviation industry will be in 24 years. Peak oil, middle east war, another 9/11 etc etc. The amount of things that could turn Aer Lingus into a loss for the pension reserve fund is many. If the pensions fund wants to make a profit for the Irish people there is a lot more prudent and more profitable ways for it to make its and our profit.